From a potent biz weapon, is pivoting turning into a face-saving strategy for failing startups?

Pivoting is essentially a course-correction that can range from a tweak in product or service to a major overhaul of a business that has hit a brick wall.Rajiv Singh | ET Bureau | Updated: May 23, 2016, 17:37 IST

Pivoting in basketball: The action of moving one foot around while in possession of the ball with the other foot rooted to the floor

Pivoting in startups: The action of moving in a new direction while being rooted in the same business

July 2011. Just six months into a business of organising robotic workshops, GreyOrange Robotics pivoted. Cofounders Samay Kohli and Akash Gupta, both from BITS Pilani, discovered that the business model could not be scaled up, that their core strength was technology and that they were not professors.

“This moment of realisation led to the first pivot in July 2011,” recalls 22-year-old Gupta, who then started building robotic devices for other companies.

The startup still had some money left in the bank. However, after five months, it pivoted again. Reason: building products for different industries meant lack of opportunity to specialise. So, from January 2012, GreyOrange started deploying its own robotic hardware and software solutions for supply chain automation across industries.

Cut to May 2016. GreyOrange has transformed into a multinational robotics firm. It claims to be growing 300% year-on-year; has raised $35 million from venture capitalists such as Tiger Global and Blume Ventures; has opened offices in Singapore, Hong Kong and Japan; plans to foray into Asia Pacific and Middle East later this year; boasts of customers like Kerry Logistics, Aramex, Flipkart and the Mahindra group; and has taken its headcount to 400 from four in 2011.

That’s pivoting for you - a course-correction that can range from a seemingly innocuous tweak in product or service, or strategy, to a major overhaul of a business that has hit a brick wall. The danger of the latter: often such radical makeovers are less of a pivot and more of a fig leaf for a failure.

Makeover or Fig Leaf?

Gupta, for his part, insists that GreyOrange’s pivots weren’t triggered by strategic botchups. “We never pivoted because of failure, or because we were not making money,” he says. Both the pivots, he points out, have been attempts to “find the right direction”.

Gupta might have followed what Eric Ries, Silicon Valley entrepreneur and father of the Lean Startup movement, recommended on the pivoting front. Successful startups change direction but stay grounded in what they have learned, Ries writes in his entrepreneurship blog Startup Lessons Learned. They keep one foot in the past and the other in a new, possible future.

While pivoting - a shift in strategy while keeping the core intact - might have helped the likes of Gupta in India and a slew of global majors (see Seven Big Pivots, Globally ) in building a business after trial and error, there’s also a flip side to the word that is becoming fashionable in the startup universe.

As cagey investors opt for profit metrics over growth and turn off the funding tap, a rash of entrepreneur is struggling to keep their head above water. After all, more than 90% of single pivots happened between 2015 and 2016, according to Tracxn, a Bengaluru-based data analytics firm focusing on startups, a period in which attracting investors got tougher. In such times, the best and often the last resort to salvage the business and some pride - rather than shut it down and be branded as a failure - is a pivot.

A pivot after hitting a dead end may also be a way to attract investors, who may just get interested in the new business model that is being showcased.

“Going ahead, pivot is going to be the new failure,” says Sunil Goyal, cofounder and CEO of YourNest, an early-stage venture capital fund that has invested in over 16 companies. Unfortunately, the definition is being changed in the current scenario, he shrugs.

Pivoting has a very simple rule, explains Goyal. As the basketball analogy suggests, it means being fixed to one’s basic position (the foot planted on the floor), with a small radius that allows you to look around for opportunities, he says.

Vipul Mishra knows a thing or two about such course corrections. The cofounder of CanvasFlip has pivoted his startup an astounding six times.

Now a cloud-based prototyping platform, CanvasFlip started as an animation platform in August 2014. After two months, it pivoted to HR gamification. One year down the line, it made the shift to explainer videos. Its sixth and last pivot was in June last year.

“Our pivots are inspired by customers,” says Mishra, adding that he always listened to his customers.

Mishra maintains that multiple pivoting has helped the startup grow. “We are seeing a much better adoption not only in the local market but overseas as well - in markets such as Singapore and California,” he says. The startup got $1.2 million in funding after its last pivot from Bessemer Venture Partners, a Silicon Valley venture capital firm.

The most difficult decision for a startup, according to Mishra, is the call between changing the product or business model and persisting with the existing one. Try it for a certain period, advises Mishra, and if you see a better engagement, keep going in that direction. “Or else, pivot. This is what starting up is all about.”

For some entrepreneurs, pivoting happens by default; it is not planned or foreseen. Rohit Mahajan is one such entrepreneur who had to pivot in November 2011 because the market dynamics changed. “Making a business plan and doing business are two different things.”

Mahajan was one of the early movers in the couponing deal space in 2010 when he launched his startup Thekha. Soon a bunch of heavily funded brands such as Rediff and eBay entered the segment.

At one point, there were over 100 players, and most of them were burning cash as they jostled for a space in the nascent market, he recalls. That’s when the first pivot happened: from couponing to a merchant-acquiring agency for couponing websites.

Mahajan partnered with top deal websites such as Taggle and started acquiring merchants for them. But a market shakeup was something the entrepreneur never expected. After burning dollops of cash, most of the deal sites either shut shop or moved into ecommerce.

“Our business also suffered. It was a tough period but we managed to survive,” he says. It was time for the second pivot, in August 2013. The third, and final pivot, came two years later when he transformed K5, which was managing dining programmes for banks, into the table reservation brand Loofre, which throws in offers and discounts at restaurants.

So has be become successful after three pivots? He strikes a cautious note. In the current scenario, success is judged through the metrics of top lines and investments raised, he points out. Pivoting has helped him stay in the black. “We are not in the rat race for investors.”

Stay Grounded

Mahajan may have gone by the book and pivoted into an area not far removed from the original core (of discounting). That is what differentiates a successful startup from the rest of the pack, according to Lean Startup guru Ries - being honest to the original vision. “Jumps (to something totally different) are extremely risky,” he writes in his blog, “because they don’t leverage the validated learning about customers that came before.”Ries maintains that without the tools to pivot well, startups get stuck between two extremes: at one end is the living dead, still expending energy but not really making progress yet hoping that the next new feature will cause traction to magically materialise; at the other end is the compulsive jumper, never picking a single direction long enough to find out if there is anything there. “Instead of these dead ends, use the problem and solution team framework and then pivot. Don’t jump,” he suggests.

Another crucial question that vexes entrepreneurs is the timing of the pivot. Ironically, the reference point to pivot, say investors, is not the stage of the business, but the faith in the business.

“The only reason I would pivot is when I have the confidence that the money and my team have a future. Otherwise I wouldn’t,” says Sanjay Pande, another co-founder of venture capital firm YourNest. He maintains that pivoting works only when the core of the business is sound.

Pande explains why entrepreneurs go wrong during pivoting by using the Marshmallow exercise. Marshmallow is a corporate activity game in which teams of six are given 10 spaghetti sticks, one metre of thread, one foot of tape, a pair of scissors and a marshmallow. The team is given 12-16 minutes to make the tallest tower they can, strong enough to take the weight of the marshmallow, says Pande.

Among the most successful people who pass the test are kids. “There is a very significant difference between the approaches of adults and kids,” says Pande.

Adults tend to aim to build a tall power at one go, which is unlikely to withstand the weight of the marshmallow. The kids, on the other hand, make a smaller structure in phases; after each phase they would test the strength of the structure by putting the marshmallow on top. This increased the chances of the model remaining intact.

“You don’t change the ground rules. You only build on them,” points out Pande. Building on the ground rules is what Darshan Subash of Cookaroo did. The cofounder of the food delivery startup pivoted for the first time in January last year, just two months after rolling out its operations: from home chef aggregation to an internetfirst restaurant model.Subash was quick to realise that the home chef aggregation model could not be scaled up. Reasons: homechefs can’t leverage economies of scale; adding more of them would result in losing control over quality; and multi-point logistics would kill the unit economics of the business.

“We had around 60% of the initial invested capital still with us when we decided to pivot,” recalls 26-year-old Subash. The results of the pivot were instant: it gave control over the quality of food, higher margins and a dramatic increase in repeat customers, he claims.

But it was a flash in the pan. Problems persisted. Unsold inventory in the internet first restaurant model threatened to wipe out profit from every order serviced by the startup. For instance, every unsold biryani would wipe out all the margins from five sold biryanis. To predict inventory accurately, the startup needed strong analytics but for that Subash needed scale, which was elusive.

Opening his kitchen was also not a solution as this was never the core competency of the founding team. So the second pivot happened in April 2015: from an internet first restaurant model to sharing under-utlilised kitchens.

Since then, Subash claims the business has been growing at a consistent 20% every week, and the model is proving to be sustainable. While revenues last November hovered around Rs 2.73 lakh, they had climbed to Rs 7.17 lakh in January this year. “We are still in the food business in spite of two pivots,” he says, underlining the point that startups need to build on the ground rules and stick to the core.

Subash’s advice to those pondering a pivot? “Be clear in your head about the reason.” Avoiding failure may be an understandably common trigger, but it isn’t the best one. As Gupta of GreyOrange says: “One should pivot only if one has a strong belief in an idea. Pivot to succeed, not to avoid failure.”